Overnight we’ve seen the Reserve Bank of New Zealand cut interest rates from 1.75% to 1.5% in a move which follows their recent dovish bias.
The NZ economy has continued to weaken of late with the labour market and consumer spending the 2 areas of most concern. As the housing market has remained stable and inflation subdued, the central bank have taken the opportunity to provide additional stimulus to the softening economy. In addition to its domestic concerns, the ongoing trade tensions between the US and China have instilled a level of uncertainty which has no doubt negatively impacted the Antipodean region.
The move from 1.75% to 1.5% brings the RBNZ in line with the Reserve Bank of Australia, who also hold a 1.5% cash interest rate. Naturally, the Kiwi dollar has weakened against its peers but not as much as many would have predicted. The currency currently lies between 0.10% and 0.40% down against its major counterparts. The reason why the move has been so tame is due to the clear previous communication from the central bank that they intended to reduce rates.
The greenback had a solid day yesterday. The currency remains resilient in the face of new doubt over a US/China trade deal. The next major test for the currency comes across the following few days where we’ll have 2 key inflation metrics released. Higher than forecast prints could provide another catalyst for the buck to rally with $1.30 now insight on the downside against the pound.
Written by Viv Savani. 8:38am, May 8th 2019
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